Leucadia National's operation can be difficult to grasp, but if you know what to look for, you'll get a better understanding for this smartly run company.

Leucadia National Corp. (NYSE:LUK) has been around for 30 years and has engaged in disciplined investing in much the same manner that Warren Buffett engages in. Leucadia hunts for companies that have executed their vision with great success, in industries that make things people frequently use, then takes a stake in those companies at a compelling price. The company also aligns its interests with shareholders by tying its own compensation to performance. A look through the company’s annual report will show the extraordinary shareholder returns on these investments over the years.

Leucadia is as much a Berkshire Hathaway (NYSE:BRK.A, BRK.B) as it is a mutual fund. Just look at its asset list: 100% of Keen Energy Services (an oil and gas driller); 100% of ResortQuest (timeshares); 100% of the Hard Rock Hotel & Casino Biloxi; 100% of Idaho Timber; and Berkadia Commercial Mortgage, a 50-50 joint venture with legendary Berkshire Hathaway that originates and services commercial mortgages.

In addition to this, Leucadia also owns a 29% stake in investment bank Jeffries Group (NYSE:JEF); 92% of Sangart (biopharma product development); a 27% stake in Mueller Industries (NYSE:MLI), which deals in copper and other metal products; a 5% stake in Fortescue Metals Group (a publicly held Australian iron ore mining company); a 16% stake in Inmet Mining Corporation (a Canadian global mining company, also publicly traded); all of Conwed Plastics (held for 25 years); 75% of STi Prepaid (prepaid phone cards); Crimson Wine Group (winery); Garcadia (auto dealerships); and investments in real estate, gasification and natural gas transport. It also just took over National Beef. Yum!

By holding stakes in public companies, Leucadia is able to buy or sell shares as it sees fit, giving it great flexibility in how it deploys capital. Its revenues and overall company value also will fluctuate with the market and performance of these stocks. For example, in the latest quarter, Leucadia only saw net securities gains of $7.2 million versus $539 million last year. So you can’t really compare these items quarter to quarter or year to year.

Furthermore, Leucadia doesn’t play the press release game or have conference calls. One just needs to read carefully over its financials and interpret the data on one’s own. Therefore, investors often panic for no good reason.

This past quarter, for example, Leucadia saw a small increase in operating revenues and a 60% increase in investment income. Expenses declined 11%. So on the operating side, everything looks fine. But if you don’t understand how Leucadia operates, you’d see a $292 million loss on “associated companies” and might panic. But these are accounted for under the equity method of accounting, and not reportable in the same way other data is. Jeffries stock, for example, has gotten hammered. That alone contributes most of the apparent loss.

The things to look at with Leucadia are overall cash position, cash flow over a long-term basis, the performance of operating companies and the stock performance of stakes held in public companies. All of these items remain strong in the most recent quarter, as they have for a very long time. That’s why I regard Leucadia as a trading stock — because investors don’t really get it. That means it’s volatile. Yet nothing has fundamentally changed about Leucadia in years. That’s why I see today’s price of $22 — off its most recent 52-week high of $38 — as a bargain, and definitely cheaper to get into than either class of Berkshire shares.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned stocks.